U.S. and Brazil may be inching closer to resolution in cotton dispute

WASHINGTON — The United States and the government of Brazil signed a memorandum of understanding establishing a fund for technical assistance and capacity building related to the cotton sector in Brazil.

Under the memorandum of understanding, the fund may also be used for activities related to international cooperation in the cotton sector in countries in sub-Saharan Africa, in Mercosur member and associate member members, in Haiti, or any other developing country as the parties may agree upon.

Cotton dispute. The memorandum of understanding also includes procedures to ensure transparency and auditing of the expenditures made from the fund. This memorandum of understanding is part of the path forward for the cotton dispute that the United States and Brazil reached earlier this month.

With the conclusion of the memorandum of understanding, Brazil has announced that countermeasures will not be imposed in the cotton dispute for at least 60 days.

Solution? The fund is scheduled to continue until the next Farm Bill or until a solution to the cotton dispute is reached. The memorandum of understanding also provides that the United States also may end the fund if Brazil imposes countermeasures.

This process builds upon the relationship with Brazil, and demonstrates how two countries can work together to address challenges. During the next 60 days, the United States and Brazil will continue their work by negotiating a framework for reaching a mutually agreed solution to resolve the cotton dispute.

Background. In 2005 and again in 2008, the World Trade Organization found that certain U.S. agricultural subsidies are inconsistent with World Trade Organization commitments: (1) payments to cotton producers under the marketing loan and countercyclical programs; and (2) export credit guarantees under the GSM-102 Program, a USDA program used to provide guarantees for credit extended by private U.S. banks to approved foreign banks for purchases of U.S. agricultural products by foreign buyers.

On August 31, 2009, WTO arbitrators issued arbitration awards in this dispute. These awards provided the level of countermeasures that Brazil could impose against U.S. trade. They include: 1) a fixed memorandum of understanding of $147.3 million for the cotton payments and 2) an memorandum of understanding for the GSM-102 program.

Counter measures. The current total of authorized counter measures is estimated at more than $800 million. The arbitrators also provided that Brazil could impose cross-sectoral countermeasures (i.e. countermeasures in sectors outside of trade in goods, specifically intellectual property and services).

It may impose cross-sectoral countermeasures to the extent that it applies total countermeasures in excess of a threshold. The threshold varies annually, but is currently approximately $560 million. Therefore, of the approximately $820 million in countermeasures Brazil could impose now, about $260 million of that could be cross-sectoral.